Japan Firms Win Head Start in Iran Oil Rights Deal
TOKYO, Nov 1. 2000 (Reuters) - Japanese firms are set to gain an advantage
over their Western rivals in negotiating rights to develop Iran's huge
Azadegan oil field, a step that offers the opportunity of breaking into
the global upstream sector. Cartoon here
Japan has said it expects to conclude a deal with Iran on Wednesday
to acquire negotiating rights to develop Azadegan, the world's biggest
undeveloped field, which is located close to the border with Iraq.
The final round of negotiations was timed to coincide with a visit by
Iranian President Mohammad Khatami who arrived on Tuesday for a four-day
visit. He is accompanied by Oil Minister Bijan Zanganeh.
Japanese firms have been only minor players in the lucrative global
upstream sector, playing second fiddle to the world's major energy companies.
While industry officials say more test drills need to be conducted before
the actual size of the Azadegan field can be ascertained, they acknowledge
that the field has great potential.
Iran has said the field has at least five to six billion barrels of
recoverable reserves with the potential to produce up to 400,000 barrels
of crude oil per day -- or more than 80 percent of the amount Japan now
imports from Iran, its third-largest supplier.
INITIAL REACTION MUTED
Initial reaction from Japan's energy industry has been low-key, however.
One senior oil company executive said: "We have no information
on the oil field, nor have we received any information from the government."
Two firms named by Japan's Ministry of International Trade and Industry
(MITI) as having shown an interest in the field declined comment, even
though the deal is virtually clinched.
Both firms -- Japan Petroleum Exploration Co Ltd (JAPEX) and Indonesia
Petroleum Ltd -- are semi-governmental, with state-run Japan National Oil
Corp (JNOC) having stakes in them of 65.7 percent and 50.0 percent respectively.
The level of private-sector interest was hard to gauge, but one industry
source said he believed the matter was far from being in the bag, which
was why only the names of semi-governmental firms had so far been raised.
Asked if the government had already gained a certain amount of private-sector
support, the source said: "Just look at the level of the equity stake
held by the government in both those firms."
The deal with Iran is in line with the Japanese government's goal to
try to make up for the loss in February of Tokyo-based developer Arabian
Oil Co Ltd's oil concession in the Saudi Arabian portion of the Neutral
Japan imports virtually all its oil.
IRAN OFFERS GOLDEN OPPORTUNITY
Nevertheless, some energy experts say Japanese firms should make the
most of this opportunity to gain a foothold in this major oil producing
Iran alone is home to the world's second-largest deposits of gas and
the fifth-largest proven oil reserves.
Ken Koyama -- group manager at the Institute of Energy Economics Japan
(IEEJ) -- said Japan should concentrate its strength and take part in a
large development project rather than divide its strength by taking part
in several different small projects, which was what commonly happened in
He said it goes without saying that there are risks involved, but added
that the possible profits to be gained for private firms would also be
"It is a huge investment opportunity...that Japanese firms should
take advantage of," Koyama said.
The return on investment -- about 15-20 percent even under a buy-back
scheme -- is higher than Japanese firms are currently earning, he said.
Under Iran's buy-back scheme, foreign firms receive crude as compensation
and profit in return for investing in projects under a formula that denies
them a direct equity stake.
Japanese firms have been reluctant to invest in Iran partly because
of the extra-territorial Iran-Libya Sanctions Act, which says the United
States is ready to impose sanctions on foreign firms that invest in Iran
and Libya, countries it says sponsor terrorism.
This is due to expire next August, but another set of sanctions, banning
U.S. trade and investment, remain in place. Washington has, however, yet
to penalise foreign firms although several big European energy firms including
Italy's Eni SpA, France's TotalFina-Elf SA and Anglo-Dutch giant Royal
Dutch/Shell Group have all signed energy deals with Iran.
If the deal is clinched and Japanese firms do go ahead with the development,
it could become Japan's first big investment in Iran since that country's
There has been no new Japanese investment in Iran since 1993.
Trade has been mostly one-sided, with Japan's exports to Iran totalling
about $361 million between January and August this year, according to Finance
By contrast, imports from Iran amounted to $3.4 billion, with crude
oil accounting for some 96 percent of the total.